A poll of finance bosses has revealed that almost half don’t have a firm grasp of VAT-related company car costs.

According to the YouGov poll for Lex Autolease poll, 20% of financial decision-makers admit to not knowing how much extra VAT they have incurred since the 17.5% rate was re-introduced in January.

A similar number (23%) thought that the higher rate generated no extra company car costs on their fleet.

For the majority of fleets, particularly the 40% or so that use contract hire, the underlying rental cost is unaffected by VAT changes. The same applies to business fuel and maintenance because generally VAT can be claimed back.

But firms do need to pay attention to the funding element of their fleet leasing costs, which is subject to disallowable VAT at 50%.

So, for those running cars for business and private use, they will find the tax take is larger than last year.

“It is arguable that since the rate dropped to 15% for just over a year, then that was a period of VAT savings, rather than it being an added cost when the rates resumed to 17.5%,” points out Dan Rees, business car consultant at Deloitte. “It would be more sensible to concentrate on the possibility of VAT rises in the future. The numbers would be similar again with a rise to 20%.”

But as Rees points out, where businesses can fully recover VAT, the cost implication of a VAT increase is “fairly small” for both employer and employee.

However, organisations that can’t recover VAT would be the most affected as the cost of acquisition, maintenance and fuel would all increase, such as charities for example.
Another impact is the likelihood of higher National Insurance contributions (NIC) because this is linked to the car’s VAT-inclusive list price.

The combined impact of these two costs will increase an average company’s VAT-related contribution by around £3 to £4 per car per month.

Employees taking delivery of a car this year, compared to last, will also experience higher Benefit In Kind (BIK) tax due to VAT-inflated list prices. This, it says, will typically cost drivers an additional £2 to £3 per month. 

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